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Estimating Borrower Mobility from Observed Prepayments

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  • John P. Harding

Abstract

This article describes a method used to estimate parameters describing the mobility of borrowers choosing fixed‐rate mortgages. Using a mortgage valuation model that predicts prepayments contingent upon parameters describing the distribution of expected tenure in the home, the average mobility of borrowers can be estimated from observed prepayment behavior. This article estimates the mobility of borrowers who chose fixed‐rate mortgages before 1980 and borrowers who chose similar mortgages in the second half of the 1980s, when adjustable‐rate mortgages were widely available. The empirical results support the claim that the average mobility of fixed‐rate borrowers has declined.

Suggested Citation

  • John P. Harding, 1997. "Estimating Borrower Mobility from Observed Prepayments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(3), pages 347-371, September.
    • Handle: RePEc:bla:reesec:v:25:y:1997:i:3:p:347-371
    DOI: 10.1111/1540-6229.00718
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    References listed on IDEAS

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    1. James VanderHoff, 1996. "Adjustable and Fixed Rate Mortgage Termination, Option Values and Local Market Conditions: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(3), pages 379-406, September.
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    Cited by:

    1. Sumit Agarwal & Richard J. Rosen & Vincent W. Yao, 2013. "Why do borrowers make mortgage refinancing mistakes?," Working Paper Series WP-2013-02, Federal Reserve Bank of Chicago.
    2. Green, Richard K. & LaCour-Little, Michael, 1999. "Some Truths about Ostriches: Who Doesn't Prepay Their Mortgages and Why They Don't," Journal of Housing Economics, Elsevier, vol. 8(3), pages 233-248, September.
    3. Sumit Agarwal & Yongheng Deng & Jia He, 2020. "Time Preferences, Mortgage Choice and Mortgage Default," International Real Estate Review, Global Social Science Institute, vol. 23(2), pages 777-813.
    4. Sumit Agarwal & Yongheng Deng & Jia He, 2020. "Time Preferences, Mortgage Choice and Mortgage Default," International Real Estate Review, Global Social Science Institute, vol. 23(2), pages 151-187.
    5. Sumit Agarwal & John C. Driscoll & David I. Laibson, 2013. "Optimal Mortgage Refinancing: A Closed‐Form Solution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 591-622, June.
    6. Agarwal, Sumit & Driscoll, John D. & Laibson, David I., 2012. "Optimal Mortgage Reï¬ nancing: A Closed Form Solution," Scholarly Articles 9918811, Harvard University Department of Economics.
    7. Harding, John P., 2000. "Mortgage Valuation with Optimal Intertemporal Refinancing Strategies," Journal of Housing Economics, Elsevier, vol. 9(4), pages 233-266, December.

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